Dudley Savings Bank wishes to take a position in Treasury bond futures contracts, which currently have a quote of 125-100. Dudley Savings thinks interest rates will go down over the period of investment. The face value of the bond underlying the futures contract is $100,000 a. Should the bank go long or short on the futures contracts? b. Given your answer to part (a), calculate the net profit to Dudley Savings Bank if the price of the futures contracts increases to 125- 210 (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16)) c. Given your answer to part (a), calculate the net profit to Dudley Savings Bank if the price of the futures contracts decreases to 124- 270 (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g.. 32.16))

Dudley Savings Bank wishes to take a position in Treasury bond futures contracts, which currently have a quote of 125-100. Dudley Savings thinks interest rates will go down over the period of investment. The face value of the bond underlying the futures contract is $100,000 a. Should the bank go long or short on the futures contracts? b. Given your answer to part (a), calculate the net profit to Dudley Savings Bank if the price of the futures contracts increases to 125- 210 (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16)) c. Given your answer to part (a), calculate the net profit to Dudley Savings Bank if the price of the futures contracts decreases to 124- 270 (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g.. 32.16))

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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P9-16 (similar to) Question Help (Related to Checkpoint 9.2) (Yield to maturity) The Saleemi Corporation's $1,000 bonds pay 7 percent interest annually and have 13 years until maturity. You can purchase the bond for $1,105. a. What is the yield to maturity on this bond? b. Should you purchase the bond if the yield to maturity on a comparable-risk bond is 7 percent? a. The yield to maturity on the Saleemi bonds is nothing%. (Round to two decimal places.)
9. A company plans to borrow $10 million for 90 days, 180 days from today. The type of FRA and the position that the company should take on this FRA to hedge its interest rate risk is most likely: FRA Position A. 3 x 6 long B. 6 x 9 long C. 6 x 3 short
P9-14 (similar to) Question Help (Related to Checkpoint 9.2) (Yield to maturity) Abner Corporation's bonds mature in 22 years and pay 9 percent interest annually. If you purchase the bonds for $1,300, what is your yield to maturity? Your yield to maturity on the Abner bonds is what %. (Round to two decimal places.)
15. A company needs to borrow £10 million for 6 months, 2 months from now. The type of FRA and the position it should take in order to hedge the interest rate risk of such transaction are: A. ‘2-6’ FRA Short position B. ‘2-6’ FRA Long position C. ‘2-8’ FRA Short position D. ‘2-8’ FRA Long position
SE10-2 Determining Bond Premium or Discount Smith and Sons, Inc., decides to sell $1,000,000 in bonds to finance the construction of a new warehouse. The bonds will carry an annual coupon rate of interest of four percent, to be paid semiannually, and will mature in five years. (a) If the market rate of interest at the time of issuance is five percent, will the bonds sell at their face value, a discount, or a premium? (b) If the market rate of interest at the time of issuance is four percent, will the bonds sell at their face value, a discount, or a premium? (c) If the market rate of interest at the time of issuance is three percent, will the bonds sell at their face value, a discount, or a premium?
Problem 6-10 Liquidity Premium Theory (LG6-7) One-year Treasury bills currently earn 3.10 percent. You expect that one year from now, 1-year Treasury bill rates will increase to 3.30 percent and that two years from now, 1-year Treasury bill rates will increase to 3.80 percent. The liquidity premium on 2-year securities is 0.15 percent and on 3-year securities is 0.25 percent. If the liquidity premium theory is correct, what should the current rate be on 3-year Treasury securities? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Question 1 2.BT is considering investing in government bonds. The current price of a P100 bond with 10 years to maturity is P88.The bonds have a coupon rate of 6% and repay face value of P100 at the end of the 10 years.Calculate the yield to maturity. 3.Explain four comparative advantages of debt as a source of finance over equity.
A3) Finance A three-month forward contract exists on a zero-coupon corporate bond with a current price per £100 nominal of £42.60. The yield available on three-month government securities is 6% pa effective. Calculate the forward price.
3b. You read in the Wall Street Journal that 30-day treasury bills are currently yielding 8%. You are informed by a broker the following estimates of current interest rate premium: . Inflation premium = 5% • Liquidity premium = 1% Maturity risk premium = 2% Default risk premium = 2% Disregard cross product terms, i.e., if averaging is required, use the arithmetic average. On the basis of these data, what is the real risk-free rate of return.
Homework MBC LO6 M7-23. to the $400,000 maturity Applying Time Value of Money Concepts Complete the missing information in the table below. Assume that all bonds pay interest semiannually. Firm 1... Firm 2... Firm 3... Firm 4... Firm 5... Annual Yield Years to Maturity Coupon Rate 8.00% 15 3.00% 6.50% 0.80% 10 ? 12 20 Concents 7.00% 0.00% 5.00% 3.50% 2.00% Face Value $ 300,000 ? $ 500,000 $1,000,000 $ 500,000 Issue Proceeds ? $ 556,853 $ 468,416 $1,147,822 ? honds Ozona Mineral
26 Dry Seal plans to issue bonds to expand operations. The bonds will have a par value of P1,000, a 10-year maturity, and a coupon interest rate of 9%, paid semiannually. Current market conditions are such that the bonds will be sold to net P937.79. What is the yield-to-maturity of these bonds? Group of answer choices 10% 8% 11% 9% Assume that you wish to purchase a 30-year bond that has a maturity value of P1,000 and a coupon interest rate of 9.5%, paid semiannually. If you require a 6.75% rate of return on this investment, what is the maximum price that you should be willing to pay for this bond? Group of answer choices P1,450 P675 P1,111 P1,352
Chapter 12, Problem 3 IBM needs to raise $I billion and is trying to decide between a domestic dollar bond issue and a Eurobond issue. The U.S. bond can be issued at a coupon of 6.75 percent, paid semiannually, with underwriting and other expenses totaling 0.95 percent of the issue size. The Eurobond would cost only 0.55 percent to issue but would bear an annual coupon of 6.88 percent. Both issues would mature in 10 years. a. Assuming all else is equal, which is the least expensive issue for IBM? B. What other factors might IBM want to consider before deciding which bond to issue?

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